Which of the following would represent a use of funds and, indirectly, a reduction in cash balances? A.
a decrease in marketable securities B. an increase in inventories C. an increase in accounts payable D.
the sale of new bonds by the firm
7) A quick ratio that is much smaller than the current ratio reflects A. a large portion of current
assets is in inventory. B. a small portion of current assets is in inventory. C. that the firm will
have a high inventory turnover. D. that the firm will have a high return on assets.
8) The most rigorous test of a firm's ability to pay its short-term obligations is its A. quick ratio. B.
current ratio. C. debt-to-assets ratio. D. times-interest-earned ratio.
14) In general, the larger the portion of a firm's sales that are on credit, the A. higher will be the firm's
need to borrow. B. lower will be the firm's need to borrow. C. more rapidly credit sales will be paid
off. D. more the firm can buy raw materials on credit.
19) When a firm employs no debt A. it has a financial leverage of one. B. it will not be profitable. C.
it has a financial leverage of zero. D. its operating leverage is equal to its financial leverage.
29) An aggressive, risk-oriented firm will likely A. borrow long-term and carry high levels of
liquidity. B. borrow short-term and carry low levels of liquidity. C. borrow short-term and carry high
levels of liquidity. D. borrow long-term and carry low levels of liquidity.
30) Risk exposure due to heavy short-term borrowing can be compensated for by A. carrying longer
term, more profitable current assets. B. carrying illiquid assets. C. carrying more receivables to increase
cash flow. D. carrying highly liquid assets.
31) How would electronic funds transfer affect the use of "float"? A. Virtually eliminate its use B.
Decrease its use somewhat C. Have no effect on its use D. Increase its use somewhat
36) The most subjective and also significant segment of the 5 C's of credit for giving final approval is
A. character. B. collateral. C. conditions. D. capacity.
41) From the banker's point of view, short-term bank credit is an excellent way of financing A. fixed
assets. B. permanent working capital needs. C. seasonal bulges in inventory and receivables. D.
repayment of long-term debt.